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Are budget deficits inflationary? A reconsideration of the evidence

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  • Ali Darrat

Abstract

This paper returns to the issue of whether high budget deficits have had any inflationary consequences in Greece. In a recent paper, Hondroyiannis and Papapetrou (1997) report results denying any direct impact of the deficit on inflation. It is shown here that their evidence lacks weight owing to several modelling and estimation problems. Upon rectifying these problems, the results consistently suggest that, besides money growth, budget deficits have also played a significant and direct role in the Greek inflationary process. Thus, efforts to curtail budget deficits in Greece as required by the EMU should also prove useful in mitigating inflationary pressures.

Suggested Citation

  • Ali Darrat, 2000. "Are budget deficits inflationary? A reconsideration of the evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 7(10), pages 633-636.
    • Handle: RePEc:taf:apeclt:v:7:y:2000:i:10:p:633-636
    DOI: 10.1080/135048500415914
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    Cited by:

    1. Harashima, Taiji, 2011. "A Mechanism of Inflation Differentials and Current Account Imbalances in the Euro Area," MPRA Paper 28121, University Library of Munich, Germany.
    2. Mwankemwa, Lusajo P. & Luvanda, Eliab, 2021. "Fiscal Deficit and its Threshold Effects on Inflation in Tanzania," African Journal of Economic Review, African Journal of Economic Review, vol. 10(1), December.
    3. José Pablo Barquero Romero & Kerry Loaiza Marín, 2017. "Inflation and Public Debt," Monetaria, Centro de Estudios Monetarios Latinoamericanos, CEMLA, vol. 0(1), pages 39-94, January-J.
    4. Mr. Jean-Claude Nachega, 2005. "Fiscal Dominance and Inflation in the Democratic Republic of the Congo," IMF Working Papers 2005/221, International Monetary Fund.
    5. repec:pra:mprapa:61939 is not listed on IDEAS
    6. Phouthanouphet Saysombath, 2014. "An Examination of the Causal Relationship between Budget Deficit and Inflation: a Case Study of Lao PDR," Journal of Social and Development Sciences, AMH International, vol. 5(2), pages 43-49.
    7. Taiji Harashima, 2004. "The Ultimate Source of Inflation: A Microfoundation of the Fiscal Theory of the Price Level," Macroeconomics 0409018, University Library of Munich, Germany, revised 30 Mar 2005.
    8. Yaya Keho, 2016. "Budget deficits, money supply and price level in West Africa," Journal of Economic and Financial Studies (JEFS), LAR Center Press, vol. 4(5), pages 1-8, October.
    9. Harashima, Taiji, 2006. "The Sustainability of Budget Deficits in an Inflationary Economy," MPRA Paper 905, University Library of Munich, Germany.
    10. Sajad Ahmad Bhat & Bandi Kamaiah, 2021. "Fiscal policy and macroeconomic effects: structural macroeconometric model and simulation analysis," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 23(1), pages 81-105, June.
    11. Esat Durguti & Nexhat Kryeziu & Emine Gashi, 2020. "How Does the Budget Deficit Affect Inflation Rate-Evidence from Western Balkans," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 9(1), pages 01-10, January.
    12. Khan, Abdul Qayyum Khan & Khattak, Naeem Ur Rehman Khattak & Hussain, Anwar Hussain, 2008. "Inter-dependencies and Causality in the Macroeconomic Variables: Evidence from Pakistan (1960-2005). Sarhad J. Agric. 24 (1): 199-205," MPRA Paper 42034, University Library of Munich, Germany.

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